Customer Capital Menu
What this is: Non‑dilutive cash from buyers—design‑partner prepayments, deposits, off‑take/advance purchase agreements, milestone/service contracts, and prepaid subscriptions—that funds build, inventory, or evidence. (Accounting note: GAAP may book this as revenue or a liability; practically it behaves like financing.)
Related: See Corporate & Strategic for corporate partnerships, and Structured & Hybrid Equity for revenue-based financing. Also see Evaluating Capital for decision framework.
When to use: You have a clear customer problem, positive unit economics, and a champion willing to lean in on scope and timing.
When to avoid: Scope or ownership is fuzzy, exclusivity/ROFR would block future channels, or delivery risk is high enough that failure here could kill the business.
Tools & Structures
Design‑partner prepayment
Early cash for access to prototypes/data; use LOI/SOW with clear deliverables, acceptance criteria, and non‑exclusivity where possible.
Off‑take / advance purchase
Customer commits cash and/or volume; great for hardware/inventory; watch price floors, penalties, and fields‑of‑use.
Milestone / service contracts
Fund pilots or evidence via paid SOWs; define acceptance criteria, IP/data‑use, and reporting requirements clearly.
Deposits / prepaid subs
Collect cash up‑front to fund working capital; be explicit on refund/credit terms and delivery windows.
Founder lens: Prefer structures that fund learning and evidence (pilots, RCTs, regulatory work) without locking you into long‑term pricing or exclusivity you'll regret. Try to keep:
Term length short or with clean opt‑outs.
Exclusivity narrow (field‑of‑use, geography, or time‑bound).
Governance light: SOW/steering instead of vetoes on future rounds.
Client Brief — Off‑Take (Lite) & Warrants
Goal: Use a modest discount and small warrant coverage to secure early volume or funding for build/inventory without giving away control.
When to use: Capital‑intensive build or launch with a small number of anchor customers; strong strategic fit; clear unit economics.
Typical structure (founder‑friendly):
Commercial discount in the 5–10% range on a defined volume or term.
0.25–1.0% fully diluted warrant coverage, struck at the next equity round price.
Clear volume/term caps so the discount doesn't quietly become your permanent price.
Key levers to negotiate:
Volume & term caps (how much, how long).
Exclusivity/ROFR (avoid broad or perpetual rights).
Pricing floors (no automatic MFN to all customers).
Change‑of‑control and default terms (cure periods, unwind mechanics).
Risks: Over‑discounting, hidden exclusivity, or implied control terms can turn a helpful off‑take into a long‑term anchor on margins and future financings.
Warrants 101 (for founders):
Treat warrants as extra discount on your future equity, granted to one customer. Even small coverage adds up once your valuation grows.
A single 0.5–1.0% warrant grant is usually survivable; stacking multiple warrant deals on the same round can quietly give away meaningful ownership.
Investors will look at these as part of your fully‑diluted cap table, and some will mark them as a "hair" on the round.
Founder‑friendly patterns (rough guide, not a rule):
Reasonable: 5–10% discount, 0.25–0.5% warrants, narrow ROFR/exclusivity, clear volume/term caps.
Usually expensive: 15–20%+ discount, ≥1% warrants, broad or perpetual ROFR/exclusivity, unclear caps.
Discount → implied APR (very rough): This is not the exact way you should think about pricing in an early‑stage startup—there are many other factors, and sometimes you simply don't have a cheaper option. But it's useful to sanity‑check the effective cost of capital for you versus the benefit your customer gets.
Rough calculation: assume the customer prepays $1 at a discount d. You receive 1 − d now and deliver $1 of value later. The implied interest over the term is approximately d / (1 − d) on an annual basis.
10%
~22.2%
~11.1%
~5.6%
20%
~50.0%
~25.0%
~12.5%
50%
~200.0%
~100.0%
~50.0%
Even with rough math, you can see how a seemingly small change in discount or term can drive a much higher implied APR. As a founder, you might still accept a high effective rate because it's customer‑aligned and your only viable path—but you should understand the trade and avoid quietly stacking multiple very expensive deals.
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